While Airbnb can provide an excellent source of income, it also carries certain risks for prospective borrowers. Lenders have become increasingly wary of Airbnb and its potential impact on mortgage applications, believing that it could result in borrowers taking on more debt than they can safely manage.
This article examines how Airbnb can affect the mortgage application process and provides guidance for borrowers on how to navigate the situation. To begin, it is important to understand how lenders view Airbnb. In general, lenders will consider Airbnb when assessing a borrower’s long-term financial stability. If a borrower is using Airbnb as a significant source of income or has several short-term rental properties, this could signal to a lender that the borrower is incurring greater levels of risk.
In addition, lenders may be concerned about a borrower’s ability to manage multiple Airbnb properties. If the borrower struggles to keep up with the responsibilities associated with running an Airbnb, this could lead to cash flow problems and ultimately put them in a worse situation. Therefore, lenders are likely to look favorably upon borrowers who can demonstrate an understanding of managing their Airbnb business and the associated risks.
Furthermore, lenders may assess a borrower’s income potential from Airbnb by looking at their recent rental history. This means that lenders will want to know the occupancy rate for the property in question, and the total amount of money the borrower has earned from Airbnb over the past year. This information can help lenders to get an idea of whether the borrower would be able to make their mortgage payments should Airbnb cease to be a source of income.
Finally, lenders may also take into account the local market in which the Airbnb property is situated. If there is an oversupply of Airbnb properties in the area, or if the local housing market is depressed, this could affect the borrower’s chances of obtaining a loan. Therefore, it is important to research the local market before making any final decisions.
Overall, Airbnb can make for an attractive additional source of income but it is important to be aware of the risks involved. Borrowers must be able to demonstrate an understanding of the potential downsides of operating an Airbnb business and must ensure that their rental history reflects positively on their chances of securing a mortgage. With this in mind, borrowers who can successfully manage their Airbnb business can reap the benefits of an extra stream of income.
This article was contributed on Oct 28, 2023
